Washington -- Apple CEO Tim Cook defended the Cupertino computer giant's use of Irish subsidiaries to avoid paying tens of billions of dollars in U.S. taxes in Senate testimony Tuesday, finding an enthusiastic ally in Republican Sen. Rand Paul, who said he was "offended" that the executive of a great American company was "dragged" before Congress to explain its overseas tax dodges.

Cook disputed a report Monday by the Senate Permanent Subcommittee on Investigations that Apple avoided paying taxes on two-thirds of its income, using Irish subsidiaries that have no employees, no physical presence, are controlled by Apple executives and are beyond the reach of any tax authority.

"We are proud to be an American company" with the "brightest and most creative people on the planet," Cook said.

'Utopian' ideal

Asked if it is fair that Apple can avoid taxes using overseas ploys unavailable to domestic companies or individuals, Cook said, "I don't see it as unfair. I'm not an unfair person. We are not an unfair company."

Richard Harvey, testifying as a tax expert from Villanova University law school, said the creator of the iPod, iPhone and iPad had achieved the "utopian" ideal of tax planners - "creating an entity that is taxed nowhere."

Cook said Apple pays "all the taxes we owe - every single dollar," insisting, "We don't depend on tax gimmicks."

Harvey said he "about fell off my chair" when he heard the assertion.

A committee investigation found that three Irish affiliates helped the company avoid paying taxes on at least $74 billion over the past four years. The investigation showed that one loophole alone last year saved the company $9 billion.

The hearing exposed a rift between the committee's top Republican, former GOP presidential nominee John McCain of Arizona, and other Republicans. McCain joined Chairman Carl Levin, D-Mich., in lambasting Apple's behavior as "completely outrageous."

McCain said the company "enjoys reminding the public" that its $6 billion in tax payments last year may make it the nation's largest taxpayer, even as the "same executives fail to mention the less attractive fact that the company is one of the nation's biggest tax avoiders."

GOP support for Apple

McCain said the loopholes exploited by Apple should be closed now, rather than waiting for a tax code overhaul that may never happen.

Most Republicans and business lobbyists want to use the revenue from any reforms to cut the corporate tax rate; they oppose closing loopholes without cutting rates.

The rest of the panel's Republicans, led by Tea Party firebrand Paul of Kentucky, blamed Congress for creating what Paul called a "bizarre and byzantine" tax code.

Paul said the committee "should apologize to Apple" for convening a hearing "to bully one of America's greatest success stories." Paul said Congress should allow U.S. multinationals to repatriate their foreign-held cash, now estimated at $1.9 trillion, at a 5 percent tax, instead of the current 35 percent corporate tax rate.

Lower tax rate sought

A law sponsored by Sen. Barbara Boxer, D-Calif., created just such a tax holiday in 2004 on the hope that multinationals would invest the money in the United States. It turned out that most spent the money on executive pay and shareholder dividends.

Apple and other Silicon Valley multinationals whose businesses are based on patents have increasingly exploited the mobility of intellectual property to move assets and profits to tax havens. The committee found similar strategies at Intel, Hewlett-Packard, Microsoft and several pharmaceutical giants.

Apple has accumulated $102 billion in cash overseas, more than two-thirds of its $145 billion cash pile. Cook testified that he has "no current plan" to bring that money home unless Congress lowers the tax rate.

Cook said the rate would have to fall to "a single-digit number" to lure Apple to return the money.

Cook said Apple pays tax on all its U.S. earnings. He denied that the company shifts profits from its intellectual property to shell entities.

"The way I look at this, there is no shifting going on that I see at all," Cook said. The Irish entities are used to manage cash on overseas sales, he said.

Transactions go 'poof'

Levin called the argument a distinction without a difference, saying Apple transfers intellectual property rights overseas to shield profits from U.S. taxes, protecting $36 billion last year alone.

Tax expert Harvey said Apple's techniques make "transactions disappear under U.S. tax law ... making things go 'poof.' "

Asked by McCain if he felt "bullied or harassed," Cook said, "I feel very good to be participating in this." He said he hoped to help Congress pass tax reform. "Any way Apple can help do that, we're ready to help," Cook said.

Latest from the SFGATE homepage:

Click below for the top news from around the Bay Area and beyond. Sign up for our newsletters to be the first to learn about breaking news and more. Go to 'Sign In' and 'Manage Profile' at the top of the page.